What is Accounts Receivable Management and How can you improve it?

account recievable

What is Accounts Receivable Management?

The management of accounts receivables is an essential function for any business. It can have a major impact on customer relations, cash flow and operating capital as well as your bottom line.

Accounts receivable (AR), is the term for payments due to your company for products or services already delivered. A good AR management means that payments are made promptly, consistently, and reliably. A well-managed AR reduces the amount of past due accounts as well as the time and effort that your staff has to work on them.

AR management involves many different processes. This includes customer relations, credit extension, invoicing, monitoring, analysis, collection and reconciliation of payments received.

Good AR management has many benefits. The first is to minimize bad debt. Businesses don’t want to be overburdened by unpaid invoices and late payments. Customers who are reliable and make regular payments will ensure that your business has enough cash flow to cover its ongoing expenses.

An AR program that is well managed will help you maintain good customer relationships and a positive reputation. A well-organized process will allow your staff to stay focused on the important, high-value work that is supporting your bottom line.

5 Tips to Improve Account Receivable Management

It is important for your business to invest in measures to maximize AR effectiveness, given its importance. These are some steps that you can take in order to improve your account receivable management.

Customer Credit Approval

Effective AR management is all about how you extend credit to customers. A well-planned and detailed process for approval of customer credit is essential to ensure you extend credit to reliable customers that are more likely to pay their bills on time. This reduces the risk to your business and the demands on your AR teams.

What steps should you take to establish credit policies that are fair?

First, create policies that outline your terms of credit for customers. These policies can cover such things as credit limits, payment terms, interest rates, default definitions, and enforcement.

Next, you need to create a process for determining credit eligibility. These guidelines should allow you to offer flexibility and other options to expand your customer base while minimizing your risk exposure. You don’t want customers that aren’t creditworthy. Credit should be granted only to those who can afford it.

You will be able to make an informed decision with this information to consider the customer’s net worth as well as past payments history.

Customer Master Information

The quality and maintenance of customer data is another area that could impact the management of your accounts receivable.

Master data, a term that is commonly used to describe the basic, static information you have about your customers, is now common. It includes information about customers, including their business name, address and bank account. However, it does not contain transaction data. Master Data Management (MDM), is the process of storing this information in one central location that is standardized, accessible, secure, and accessible.

Multiple ways data concerning customers can be problematic. Multiple ways data concerning customers can become problematic. If different departments enter the data using different formats or platforms, or without standardization you will end up with duplicate records that are hard to understand and use. When the data is needed to process outstanding payments, this can cause a serious problem in your accounts receivable.

A well-implemented Master Data Management System will help you avoid these types of hang-ups. It allows your business to create a “golden record” of information which is a single repository of all data from all departments and platforms.

Master data management can be done in many different ways. You should have clear policies, just like credit approval. These policies should include clearly defined terms and an understanding of what data you are collecting.

To eliminate conflicting or bad information, put in place protocols to regularly check the quality of your data. Your staff should be trained in data practices to ensure everyone is aware of them and follows the same procedures.

Invoicing and Billing

Invoicing supports AR management and credit approvals. This is how professional and effective billing can be done.

First, your invoices should be accurate. Keep good records of the work, products and/or services you are invoicing.

To avoid confusion, make sure you are clear about your terms of payment. To refresh customers’ memories and to avoid any disputes, include all terms agreed to with them in your invoice. This will let your customers know you are trustworthy.

You can decide how often you want your customers to be invoiced and then do it at regular intervals. To avoid delays, send invoices as soon as possible.

Your invoices should be clear and easy to understand. They should also look professional. Include the due dates and terms of payment.

These details will ensure reliable billing and a smoother process for accounts receivable.

Enhance Your Cash Application Process

Cash application is another important aspect of AR management.

Cash application is an important part of the AR process. It applies incoming payments correctly to customer accounts and receivables invoices. A well-run cash application will reduce discrepancies and increase your accounts receivables.

The digital world presents many challenges for cash application. It was traditionally done manually. Invoices were often attached to checks that were made payable.

This is possible because technology has made it easier to accept payments in many different forms. These include credit cards and electronic debits, ACH, wire transfer, and old-fashioned check.

Cash application specialists face new challenges with this range of customer options. Data from transactions must now be retrieved from multiple sources, and sometimes the actual payment is not.

There are many ways that technology can be used by businesses to speed up their cash application. The process is faster when automation matches payment to the invoice and enters the information into your general ledger in a fraction of the time that it takes accountants to review the paperwork.

Automated cash applications can reduce errors and improve accuracy. Automated cash applications are scalable. They allow you to accept a variety of payment options, and help grow your business.

Why managing accounts receivable matters

The cash flow of a business is crucial. Good AR management can help improve cash flow. It should be given the time and attention it deserves.

If your company isn’t managing its collections effectively and has a persistent problem with payments in arrears, there is a risk that you won’t have enough cash to pay for essential operations such as salaries, purchases, dividends, and so on.

Good AR management builds trust and strengthens your business’s image. Poor customer relations can affect your company’s ability to retain clients and get great deals in the future.

The strength of your accounts receivables program can have a significant impact on your relationships with investors and your ability for growth. Your balance sheet and bottom line can be affected by cash flow. As an indicator of a healthy balance sheet, lenders and investors will examine whether your business has a strong accounts receivables process and a track record in collecting payments.

Automatic Accounts Receivable with Cash Application

Automating your accounts receivables can be done in a way that leverages automation. Cash application reduces the time required to transfer cash to open invoices.

AI is used to apply customer invoice payments in your ERP. Machine learning allows for continuous optimization through the prediction of future matches, which further reduces manual effort and dependence on remittances.

Intelligent automation automates manual receivable processes. It drives the most efficient end to end process, from customer invoice to bank cash–fully applied.

Cash Application can be used to increase cash collection and decrease days sales outstanding (DSO), increase working cash and cash availability, reduce costs and improve process efficiency, standardize global processes, and achieve global process standardization.

Organizations can eliminate manual processes by using intelligent automation and the most recent in reporting and analysis technology. This allows them to focus on driving business value and allowing their teams to concentrate on the important things.

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